Sharia-Based Sustainability Accounting, ESG Performance, Corporate Governance, and Firm Risk: Evidence from ISSI-Listed Firms in Indonesia

Abstract

This study examines whether Environmental, Social, and Governance (ESG) performance is associated with lower risk firm risk and whether corporate governance strengthens this relationship among companies listed on the Indonesia Sharia Stock Index (ISSI). Extending prior ESG-risk research, the article frames ESG performance as a sharia-based sustainability accounting mechanism through which firm measure, disclose, communicate, and account for environmental, social, governance, and risk-related responsibilities. Drawing on Stakeholder Theory, Legitimacy Theory, Agency Theory, and Maqasid al-Shariah, the study develops an integrated framework linking ESG performance, corporate governance, Islamic accountability, and firm risk. Using panel data from 30 ISSI-listed companies over the 2019-2023 period, comprising 150 firm-year observations, firm risk is measured through stock volatility and the Altman Z-Score. ESG performance is measured using ESG scores published by the Indonesia Stock Exchange, while corporate governance is proxied by a composite index consisting of board size, independent commissioners, institutional ownership, and board meeting frequency. The findings show that ESG performance has a negative and significant effect on stock volatility and a positive and significant effect on the Altman Z-Score. Corporate governance significantly moderates both relationships, indicating that stronger governance enhances the risk-reducing value of ESG. The findings suggest that ESG is not merely a reputational instrument, but also a sustainability accounting and sharia accountability mechanism that helps protect wealth, reduce uncertainty, and strengthen corporate resilience. The study contributes to Islamic accounting and sustainable finance literature by clarifying how sharia-compliant firms translate ESG practices into risk mitigation through governance quality